YOUR GUIDE TO NAVIGATING THE CHINESE RENMINBI

An opportunity for your business to shine

If you’re doing business with

China today, don’t let the RMB

detract from your profits.

Access to RMB means new business opportunities

For most of its existence, the Chinese renminbi (RMB) hasn’t been allowed

outside of China’s borders. Foreign businesses had to pay Chinese suppliers in

dollars (or another major currency) which were then converted and delivered to

the Chinese company in their local currency.

This convoluted process made it difficult for foreign businesses to negotiate

pricing because local companies had to cover the cost of RMB conversion.

Not to mention, the settlement cycle was slow and cumbersome, and there

was little transparency around foreign exchange fees.

However, in 2009 policymakers began opening up access to the RMB.

Which means that today, it’s now possible for Western companies to

directly manage the exchange rates applied to their transactions with China.

While this increases payment transparency, speeds up settlement and

helps to lower costs, many businesses find the new process daunting.

If you’re doing business with China, don’t let the RMB get the better of you

and your profits. Take advantage of the following handy insights to smoothly

navigate your way into China.

1 super currency, 3 separate markets

The first thing to understand about the internationalized RMB is that there are

three markets, or ‘avenues’ of payment.

These markets remain distinct from each other, with unique functional

advantages to each.

It’s possible to increase savings and transparency by using different currency

codes for different types of payments. But this requires deep knowledge of

market conditions, and is best done with the assistance of an experienced

currency provider.

Read on for an explanation of each market.

CHINESE ECONOMY TIMELINE

1978Reformist leader

Deng Xiaoping announces open door

policy

1984Opens up 14 cities and

3 regions to foreign investment

1990Stock markets

open in Shanghai and Shenzhen

2010China overtakes

Japan as second largest economy

Source: Wikipedia.com; The Globalist

1

3

How to navigate China’s 3 markets

Onshore Chinese yuan (CNY)

The CNY currency code refers to renminbi

traded within mainland China. The CNY is

only partially convertible, and can only be

used within China for properly documented

trade‑related transactions. Lending and

investment transactions are severely limited.

Payments are typically settled by remitting

US dollars to an onshore entity that then

converts it into CNY.

Because no entities outside of China are

permitted to engage in onshore CNY

trading, execution rates are often less

favourable when compared to CNH and

NDF transactions.

Offshore Non-Deliverable Forwards (NDF)

Outside of China, many entities use the non‑deliverable forward market to manage

their exposures. Transactions are settled in dollars at the prevailing USDCNY rate.

With no link to the onshore spot market, businesses typically use NDFs to hedge

exchange rate risks associated with China‑related, dollar‑settled trading relationships.

2Offshore Chinese yuan (CNH)

CNH is the two‑way, fully deliverable, fully

convertible version of the renminbi. It is traded

outside of mainland China, mainly in Hong Kong.

CNH can be freely moved between international

accounts, or used to purchase onshore CNY

on a 1:1 basis. However, CNH payments

cannot go to an individual (with the exception

of the Guangdong province), and must be for

trade‑related purposes where all purchased

products and services will leave the country.

CNH provides more favourable pricing than its

onshore counterpart.

$USD

$USD

$USD¥

CNY

¥CNH

¥CNY

¥CNH

DOES NOT GO INTO CHINA

INTO CHINA

INTO CHINA

$USD

¥CNY

RATE

$USD

$USD

Please note: This information is for educational purposes only. Western Union Business Solutions does not offer all products in all jurisdictions.

Many Western companies remain inflexibly tied to the US dollar, leaving others to explore the

opportunities for increased efficiency and cost savings. However, paying Chinese business

partners in RMB has never been easier – or more profitable. Here are a few key considerations:

5 tips to unlock the RMB

1. The RMB could save you money

Paying in RMB can be good for your bottom line. When Chinese

companies handle the currency conversion process themselves,

they incur additional costs which are then added to their invoices.

People’s Bank of China has stated that international importers can

save 2% ‑ 3% on an invoice by paying in RMB*. Let your business

partners know upfront that you can pay them in local currency.

2. Strengthen business relationships

Many Chinese exporters believe their foreign partners are unable or

unwilling to pay in RMB, so they rarely broach the subject proactively.

Simply opening the discussion can deliver financial benefits – and

deepen your business relationships.

3. Faster payments could improve cash flow

In our experience, CNH payments are received much more quickly

than their USD equivalents. For businesses, this is a key advantage –

speeding up the settlement cycle can help optimize cash balances and

dramatically reduce back‑end processing costs.

4. Make it easy for business partners

In many cases, receiving RMB instead of dollars can help onshore

partners streamline customs declaration procedures and reduce reporting

requirements. Talk to your beneficiaries about the processes that must be

put into place in order to support this effort.

5. Beware of hidden exposures

Settling transactions in US dollars does not make foreign exchange risk

disappear; it simply makes it more difficult to control. If the RMB rises in value,

US dollar costs will also rise. Non‑deliverable forward (NDF) contracts can help

to protect against swings in the RMB exchange rate over longer time horizons†.

* China Daily, 2012 http://usa.chinadaily.com.cn/business/2012-10/31/content_15859117.html

† Western Union Business Solutions offers various foreign exchange products and this is an example of one of those products and is not a recommendation. This is factual information only and we have not considered your relevant circumstances. You must read the relevant product disclosure statement prior to making any decisions.

An opportunity for your business to shine in China

China is a rapidly growing economy that many believe has the potential to

become a global powerhouse. If your business is tapping into this RMB

opportunity, start paying your partners in their local currency and position

yourself to negotiate better pricing levels.

By taking advantage of this currency opportunity, you can bring predictability to

cash flows and strengthen your business relationships.

CHINESE GLOBAL TRADE

Source: Wikipedia.com; china-trade-research.hktdc.com

In 2014, China’s total external trade reached US$4.30 trillion, ranked the first in the world.

$1.15 trillion

$2.17 trillion

$3.64 trillion

$4.16 trillion

2004 2007 2011 2013201220102009200820062005

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